Figure 14-13 Suppose a Firm in a Competitive Industry Has the Following

question 519

Multiple Choice

Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
-Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run?

• A)Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.
• B)Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
• C)Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
• D)Because the price is below the firm's average variable costs, the firms will shut down.